In a nutshell...

Kerabu is a work in progress. So far there's a business plan, a blog and a draft of a book--all of which are about promoting a form of radical entrepreneurialism that is lucid, ecstatic and even sensual. (None too subtle, but that's why the blog is pretty and floaty--too many business blogs are IBM blue). My name is Hillary Johnson, and I'm the author of some books and a contributor to some other blogs (below), and sometimes write about business, entrepreneurialism and innovation for magazines like Inc.

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March 12, 2006

The Globalisation Institute (a British think tank with ideas as fresh as my brother Din's daily brew at Ristretto Roasters) has some really interesting thinking on what the Fairtrade movement really means for growers in the developing world. Here's a snippet of what Alex Singleton has to say on the subject:

It is Fairtrade Fortnight, and we are all being encouraged to pay extra for everything from coffee to bananas. Coffee, a totemic product for the development community, is a product where many producers have suffered from lowering prices. Massive overproduction, caused largely by mechanisation in Brazil and the rise of Vietnam as a major producer, has had its effect on prices.

To read Singleton's manifesto on how to renovate the Fairtrade movement to make it truly meaningful to growers, check out Fairtrade 2.0 (n.b., best viewed while imbibing a nice cup of Ristretto's Kenya AA Katuro).

March 11, 2006

I think the problem with equality as we use the term in political and economic debate is that it implies the existence of an axis when it comes to the measurement of prosperity.

After reading David Schmidtz's lead essay on this month's Cato Unbound topic, When Inequality Matters, I started thinking about whether equality was absolute or relative. Well, it's both, I thought.... no, wait a minute, it's neither.... wait, what was the question?

Or rather, how good is the question?

The problem with the seductive notion of "equality," in actual use, is that it's really a crippled concept to start with. Imagine you had ten kids, and someone asked you whether or not they were "equal" in your eyes. You'd answer, "Of course they are!" while thinking all the while, "What a stupid question; this person I'm talking to obviously doesn't have kids."

That's pretty much how you feel when the IRS asks you if you're "rich", too.

It's a bit ludicrous to think that there exists a truly rational means of measuring success, whether economic or personal or otherwise. The unspoken truth is that our judgments as to whether or not a person is successful or wealthy are emotional and impressionistic at root. Like art, wealth is something about which I can safely say, "I know it when I see it."

Scmidtz writes:

Liberal political equality is not premised on the absurd hope that, under ideal conditions, we all turn out to be equally worthy. It presupposes only a traditionally liberal optimism regarding what kind of society results from giving people (all people, so far as we can) a chance to choose worthy ways of life. We do not see people’s various contributions as equally valuable, but that was never the point of equal opportunity, and never could be.

Makes me wonder whether or not our collective failure to grasp the meaning of prosperity comes from the fact that we keep calling it equality. As euphemisms go, it's a sloppy one. Distracting, too.

By endlessly parsing equality instead of prosperity we keep 90% of our discussion focused on the relatively small "grey area" of the debate. It's a bit like trying to define what a celebrity is by endlessly debating whether or not the people on Celebrity Fit Club are "really" celebrities. The real answer to that particular question isn't to be found on an axis, nor in any relative valuation--the real answer is: It doesn't matter. Except perhaps to Chastity Bono, but I doubt that even she cares.

February 27, 2006

The authors argue that the fashion sector has more innovation because of its near-absence of copyright protection. Here is some brief background on the issue.

Fashion is a status good. You wear a new design if some other people do (it must be focal as an object of status), but not if too many other people do. You want some degree of exclusivity to your wardrobe. So let's say a new design comes out. There will be some early adopters, but then a rapid series of rip-offs from other companies. Once the rip-offs come, companies invest in making further designs. Fashion is ephemeral and the rip-offs spur the next round of innovation.

I think it's important to make a distinction here between design and innovation. Innovation, in my book, implies additional functionality, a permanent leap forward, even if slight. Not all design is innovative. Fashion design is mostly non-innovative design. Nor are clothes quite classifiable as art objects, the way poems or paintings are--garments need to be worn to exist, which makes them more like theatre than anything else.

In terms of an economic model, I'm not sure piracy in the fashion industry is comparable to piracy in the music industry. A pirated copy of Lawrence of Arabia offers the same user experience as the paid version. But a pirated Prada bag is not a Prada bag, nor, for the most part, do the real thing and the copy share the same customer base. As I mentioned, fashion is fundamentally an interactive, "live performance"--and to that extent, it cannot be pirated quite the way entertainment can.

There still may be lessons for entertainment here: I think one of the reasons fashion tolerates piracy so well is that fashion houses are far more focused on brand-building than on product. And piracy actually helps build a brand.

Maybe entertainment companies focus more on brand than product. Why do musicians release an album a year? Why shouldn't they release a song a week, and distribute them to subscribers via podcast? Since iTunes started selling TV shows, I've spent around $100 on Battlestar Gallactica and Lost episodes--and it would be double that if I could get 24. And I'm guessing a lot of customers like me are too lazy or busy to mess with tracking down bootleg bit-torrent files. So the lesson from the fashion industry isn't so much about innovation in product design--it's about old-school innovation in marketing. Increase revenues by increasing the stream of product--make the freshness of the product a selling point.

February 24, 2006

Tyler Cowen has a post on Marginal Revolution about the economics of polygamy, in which he examines the trade-offs:

How about the trade-off between quality and quantity of children? A genetically talented father with many wives will likely maximize the quantity of children rather than their quality. This has a long-run negative externality, especially if you believe in the Lucas-Uzawa models of economic growth, or some approximation thereof. You would rather be in a society with fewer but more talented people. Switzerland rather than India. The loser is not the wives but rather the next generation of children. A piece in the February JPE also notes that the children may substitute for savings and thus polygamy can stunt capital formation; I take this as another version of the same argument.

The bottom line? We should encourage family structures that spur human capital formation. Polygamy does not do the trick.

This set me to wondering if this same model applies to the behavior of venture capitalists and/or angel investors. Is our capital structure fostering quantity over quality? It seems that despite the PowerPoint mating ritual and all the subsequent due diligence striptease, the point is still to broadcast seed to lots of sexy little startups, hoping to knock a percentage of them up. VCs invest in companies you couldn't take home to your mother all the time, and we both know it.

To echo Cowen: The bottom line? We should encourage investment structures that spur human capital formation. For an example of just such an alternative model, see this post by Fleck's Patrick de Laive on Funding a (European) Startup.

July 20, 2005

Thank you all for coming tonight. I'm Alex Singleton, president of The
Globalization Institute. In the next few minutes, I'm going to tell you
a little bit about the Globalization Institute and we're also going to
hear from Bill Emmott, the Editor of the Economist, and Alan Beattie,
the World Trade Editor of The Financial Times.

We follow the Manchester School of Economics. That's the school
founded in the 19th Century by economists, businesspeople and
campaigners who argued for free trade. Why would we want to dig up the
ideas of some dead economists?

Well, it's because history repeats itself. Over 150 years ago a
group of Manchester men, most notably Richard Cobden and John Bright -
our intellectual heroes - set up the Anti-Corn Law League to campaign
for free trade. Free trade however wasn't an entirely popular idea,
though, and a speaker they employed to travel the country sometime
found an angry mob would form to prevent him from speaking.
Protectionists held protectionist meetings to say why Britain - then a
developing country - needed to protect its economy. The problem was
that this protection - while nice for farming landowners - was causing
people to starve.

Nowadays we have a new generation of protectionists who say that
today's developing countries should protect their economies. India did
that in the 30 years after independence. Like in 19th Century Britain,
the result was starvation.

We are not neo-liberals. We have healthy skepticism of neo-liberal
institutions. We think the World Trade Organization, for example, is OK
and we wish it well. But in the two decades, most of the lowering of
protection has been done unilaterally - most notably by China and
India. It's the liberalisation from below that works best. Ultimately
it's going to be nations deciding individually to adopt free trade that
will be the big idea of the 21th Century just as it was in the 19th.

If you want to label us, label us as lower-case l liberals.
Philosophically are real liberals - not neo-liberals, not
neo-conservatives, not corporatists. We are pro-enterprise but not in
the pockets of big business. We don't represent multinational
companies. After all, there are lots of first-rate public affairs
companies that do that already. Most of our funding comes from a wide
spread of individuals and grant-making foundations. We of course
welcome contributions from businesses who wish to facilitate free
thinking on policy issues, but we limit the amount that any particular
company can give us in order to preserve the independence of our work.

So what are our successes so far? The Archbishop of Canterbury
preached about one of our reports in St Paul's Cathedral. We succeeded
in getting Christian Aid to alter some of its advertising. Our website
is getting over 1000 visitors a day. And we're already getting a huge
amount of broadcast media hits on the subject of globalization.

I'll leave you with a quote from Richard Cobden which sums up our frame of mind quite perfectly.

"I see in the Free Trade principle that which shall act on the moral
world as the principle of gravitation in the universe - drawing men
together, thrusting aside the antagonism of race and creed and
language, and uniting us in the bonds of eternal peace... I believe
that the desire and the motive for large and mighty empires - for
gigantic armies and great navies - for those materials which are used
for the destruction of life and the desolation of the rewards of labour
- will die away; I believe that such things will cease to be necessary,
or to be used, when man becomes one family and freely exchanges the
fruits of his labour with his brother man."

Or, in other words, free trade is a good thing not just because it
promotes prosperity but because it promotes peace. So I propose a
toast: to free trade and world peace.

It is often claimed that outsourcing leads to increased unemployment
within the country. But the facts point to the opposite. Despite huge
worries about outsourcing in the last three or four years, U.S.
unemployment is currently 5.0%, which is the lowest rate since September 2001. There are more jobs in the US economy today than ever before.

This should not come as a surprise to anyone. The idea that jobs are
perpetually lost to other places implies that there is a fixed amount
of work to do in a country. This is clearly not the case. In order to
reduce costs, jobs are offshored to countries where the work force is
cheaper. Profits are increased and this capital can be employed in
other parts of the economy. Hence, domestic jobs are not disappearing,
they're only transforming.

May 03, 2005

Most of my Aha! moments are somewhat embarrassing. This is because they usually involve discovering something as plain as the nose on my face (or in my case, my reading glasses perched on top of my head). I suspect the world as we know it also has a pair of glasses on top of its head, or more poetically, a pair of Ruby Slippers on its feet ("You had the power all along, Dorothy!" says Glinda in that cute, smug good-witch voice). Back in January, Fast Company posted this:

University of Michigan strategy guru C.K. Prahalad thinks that poverty
can be solved -- and profitably so. Doing so, though, will require
corporations to think, uncharacteristically, as entrepreneurs,
intentionally and intelligently targeting consumers at the lowest rungs
of the economic food chain. His new study, The Fortune at the Bottom of the Pyramid (Wharton School Publishing, 2004), offers a powerful casebook for those who want to try.

Click here to read the interview. I'll have to download a copy from audible to listen to in my car.